This is our first weekly sector insights post—analyzing the industries showing the strongest momentum heading into 2026. The goal: understand why certain industries are outperforming so you can align your positions with the prevailing winds.
As covered in our research foundation post, industry selection accounts for roughly 37% of stock price movement. Getting this right is half the battle.
Selection Methodology
Industries are ranked based on three factors:
- 3-Month Relative Strength vs. S&P 500 — Which industries are outperforming the broader market?
- Institutional Accumulation Signals — Where is smart money flowing based on 13F filings and ETF flows?
- Catalyst Visibility — What upcoming events could drive continued momentum?
This framework identifies industries with both technical strength and fundamental reasons to continue.
Top 7 Industries: January 2026
1. Semiconductors & Semiconductor Equipment
Rating: 9/10
| Metric | Assessment |
|---|---|
| 3-Month Relative Strength | Outstanding (+18-24% vs S&P) |
| Institutional Accumulation | Very High |
| Catalyst Visibility | Strong (CES, Q4 earnings, CHIPS Act Phase 2) |
Why it’s leading:
The AI infrastructure buildout continues accelerating. Hyperscalers have committed over $200B to data center expansion in 2025-2026. High-bandwidth memory (HBM) demand for AI accelerators has created sustained supply shortages that won’t normalize until mid-2026 at earliest.
The semiconductor industry contributed nearly 12 percentage points of the technology sector’s 21% gain in 2025. Memory chip companies saw particularly explosive gains—some up 150-210%—on AI-related demand.
Key drivers:
- AI data center buildout requiring advanced chips
- HBM3 memory supply constraints
- CHIPS Act funding driving domestic manufacturing investment
- Continued corporate AI spending commitments
Risks: Elevated valuations, potential demand slowdown if AI monetization disappoints, China trade tensions.
2. Aerospace & Defense
Rating: 8.5/10
| Metric | Assessment |
|---|---|
| 3-Month Relative Strength | Excellent (+15-46% sub-index) |
| Institutional Accumulation | High |
| Catalyst Visibility | Strong (FY2026 defense budgets, NATO commitments) |
Why it’s leading:
Geopolitical tensions are forcing NATO allies and Asian partners to increase defense spending. The FY2026 defense budget markup is expected to show 8-10% procurement increases. Commercial aerospace continues recovering with Boeing/Airbus order backlogs extending through 2028.
Leading defense contractors and aerospace suppliers contributed approximately 600 basis points to the industrials sector return in 2025.
Key drivers:
- NATO defense spending acceleration
- Pacific theater modernization
- Commercial aerospace recovery and aftermarket services growth
- Supply chain normalization improving margins
Risks: Budget sequestration risk, commercial travel demand slowdown, raw material cost inflation.
3. Data Storage & Memory
Rating: 8/10
| Metric | Assessment |
|---|---|
| 3-Month Relative Strength | Exceptional (top performers in S&P) |
| Institutional Accumulation | Very High |
| Catalyst Visibility | Strong (AI data center storage needs) |
Why it’s leading:
Data storage emerged as a surprise leader in 2025—four of the top five S&P 500 performers were storage companies. The AI boom requires massive data storage capacity, and HDDs remain the most cost-effective bulk storage for hyperscalers. NAND demand is recovering from oversupply conditions.
Memory chips are experiencing surge demand as AI model training requires high-bandwidth data feeds. This is a cyclical industry that’s currently in the favorable part of its cycle.
Key drivers:
- AI data centers require massive storage capacity
- HBM demand surge for AI training
- Recovery from NAND oversupply
- Enterprise storage refresh cycle
Risks: Cyclical oversupply risk, commodity-like pricing pressure, China competition.
4. Healthcare: GLP-1 & Obesity Drugs
Rating: 8/10
| Metric | Assessment |
|---|---|
| 3-Month Relative Strength | Improving (sector in repair phase) |
| Institutional Accumulation | Increasing rapidly |
| Catalyst Visibility | Strong (oral GLP-1 approvals expected Q1-Q2) |
Why it’s leading:
Healthcare is experiencing a “renaissance” driven by GLP-1 breakthroughs and biotech M&A activity. The GLP-1 obesity drug market is projected to reach $100B by 2030—creating massive TAM expansion for companies in this space.
A major oral GLP-1 drug launched in January 2026. Another major oral approval is expected mid-2026, which could unlock the “oral obesity market”—a more convenient form factor than current injectables.
Biotech M&A has already surpassed 2024 totals ($49B vs $44B), with large pharma actively acquiring growth.
Key drivers:
- GLP-1 market expansion to $100B TAM
- Oral formulation launches improving accessibility
- Active M&A environment for biotech
- Medical device demand from diabetes monitoring
Risks: Drug pricing reform, FDA policy uncertainty, competition intensifying.
5. AI Software & Platforms
Rating: 7.5/10
| Metric | Assessment |
|---|---|
| 3-Month Relative Strength | Strong (leaders up 100%+) |
| Institutional Accumulation | High for leaders |
| Catalyst Visibility | Moderate (enterprise adoption acceleration) |
Why it’s leading:
AI platform companies demonstrated that software monetization of AI is real. Enterprise AI adoption is moving from pilot to production phase, with AI agents and copilots driving 20-30% ARR growth for leaders.
Revenue growth at major platforms accelerated through 2025—in some cases the fastest growth in three years—driven by AI product adoption. Enterprise AI spending is projected to exceed $2.8 trillion cumulative by 2029.
Key drivers:
- Enterprise AI moving from pilot to production
- AI agent and copilot adoption accelerating
- Margin expansion as R&D costs stabilize
- Federal AI procurement guidelines expected Q2
Risks: Application-layer software companies struggling (some down 20-30%), valuation compression risk if monetization slows.
6. Power Infrastructure & Electrical Equipment
Rating: 7.5/10
| Metric | Assessment |
|---|---|
| 3-Month Relative Strength | Strong (pure-play leaders up 100%+) |
| Institutional Accumulation | Moderate-High |
| Catalyst Visibility | Strong (data center power demand) |
Why it’s leading:
AI data centers are driving a “power renaissance.” These facilities target gigawatt-level power loads—comparable to small cities—with price tags in the tens of billions. The IEA projects global energy investment reaching $3.3T in 2025, with annual grid investment needing to nearly double to $600B by 2030.
Nuclear energy fundamentals remain strong with uranium supply deficits (140M lb supply vs 180M lb demand). Uranium prices have quadrupled to $106/lb, benefiting producers and supporting new nuclear development.
Key drivers:
- Data center power demand surge
- Grid modernization spending requirements
- Nuclear energy supply deficit
- Renewable energy infrastructure buildout
Risks: Permitting delays, interest rate sensitivity, execution risk on new capacity.
7. Financials: Banks & Capital Markets
Rating: 7/10
| Metric | Assessment |
|---|---|
| 3-Month Relative Strength | Solid (trading at discount to S&P) |
| Institutional Accumulation | Moderate |
| Catalyst Visibility | Moderate (potential deregulation, M&A pickup) |
Why it’s interesting:
Financials offer relative value versus the broader market—trading at 17x P/E vs the S&P’s 27x P/E with higher dividend yields. The sector benefits from continued economic growth, potential regulatory easing, and improved net interest margins as the yield curve normalizes.
Investment banks are benefiting from recovering M&A and capital markets activity. The IPO pipeline is showing signs of recovery after the 2024 drought. Regional banks have stabilized after the 2023 stress.
Key drivers:
- Relative valuation discount to market
- Yield curve normalization improving NIM
- M&A and capital markets activity recovery
- Potential regulatory easing
Risks: Economic slowdown, credit quality deterioration, commercial real estate exposure, regulatory uncertainty.
Key Risks to Monitor
Regardless of industry selection, remember that 50% of stock movement is tied to the general market. A correction would impact all positions. Key macro risks:
- AI Monetization — If enterprise AI returns disappoint, the tech/semiconductor rally could reverse quickly
- Valuation Compression — Many leading industries trade at elevated multiples relative to history
- Policy Uncertainty — Drug pricing reform, tariffs, and regulatory changes remain fluid
- Geopolitical Risk — Trade tensions with China could disrupt semiconductor supply chains
Summary Table
| Rank | Industry | Rating | Primary Driver |
|---|---|---|---|
| 1 | Semiconductors | 9/10 | AI infrastructure, HBM demand |
| 2 | Aerospace & Defense | 8.5/10 | Geopolitical spending, NATO |
| 3 | Data Storage/Memory | 8/10 | AI data center buildout |
| 4 | Healthcare (GLP-1) | 8/10 | Oral GLP-1 launches, M&A |
| 5 | AI Software/Platforms | 7.5/10 | Enterprise AI adoption |
| 6 | Power Infrastructure | 7.5/10 | Data center power demand |
| 7 | Financials | 7/10 | Relative value, rate normalization |
This analysis is for informational purposes only and does not constitute investment advice. Industry conditions change rapidly. Past performance does not guarantee future results. Always conduct your own research and consider consulting a financial advisor before making investment decisions.